Grant County Constructors v. E. V. Lane Corp.

• Citation: 77 Wn.2d 110,459 P.2d 947
• Decision Date: 16 October 1969
• Docket Number: No. 39462,39462
• Parties: GRANT COUNTY CONSTRUCTORS, a joint venture composed of Morrison-Knudsen, Inc., Henry J. Kaiser Company, Masco Corporation, Raymond International, Inc., and F & S Contracting Company; and Fireman's Fund Insurance Company, a corporation, Appellants, v. E. V. LANE CORPORATION, a Nevada corporation, and Gunther & Shirley Company, a Nebraska corporation, doing business as Gunther-Shirley-Lane, a joint venture, and American Home Assurance Company, Universal Insurance Company, Balfour Guthrie Insurance Company, Agricultural Insurance Company and United States Fire Insurance Company, Respondents.
• Court: Washington Supreme Court

Page 110

77 Wn.2d 110

459 P.2d 947

GRANT COUNTY CONSTRUCTORS, a joint venture composed of

Morrison-Knudsen, Inc., Henry J. Kaiser Company, Masco

Corporation, Raymond International, Inc., and F & S

Contracting Company; and Fireman's Fund Insurance Company, a corporation, Appellants, v. E. V. LANE CORPORATION, a Nevada corporation, and Gunther &

Shirley Company, a Nebraska corporation, doing business as

Gunther-Shirley-Lane, a joint venture, and American Home

Assurance Company, Universal Insurance Company, Balfour

Guthrie Insurance Company, Agricultural Insurance Company

and United States Fire Insurance Company, Respondents.

No. 39462.

Supreme Court of Washington, Department 2.

Oct. 16, 1969.

John Gavin, of Gavin, Robinson, Kendrick, Redman & Mays, Yakima, Hall, Henry, Oliver & McReavy, San Francisco, Cal., for appellants; (Lee H. Cliff, San Francisco, Cal., of counsel).

Alan A. McDonald of Halverson, Applegate & McDonald, Yakima, for respondents.

HALE, Judge.

Grant County Constructors, prime contractor on the Columbia River Wanapum hydroelectric project, seeks recovery against its subcontractor and the latter's insurance carriers for fire damage to a generator shaft. The trial court, ultimately seeing an ambiguity in the contract between the two contractors and in the insurance policy, admitted parol evidence to explain the ambiguity. From this parole evidence, the court concluded that the prime contractor and not defendant subcontractor was on the risk at the moment of loss, and defendant insurance carriers, therefore, were not liable. The prime contractor and its insurance carrier appeal.

Grant County Constructors, a joint venture composed of four constructions companies, was awarded the prime contract in 1959 by Grant County Public Utility District No. 2 to build the Wanapum Dam and powerhouse on the Columbia River and to install the hydroelectric generating system at a contract cost of about $92,000,000. The joint venturing companies delegated to Morrison-Knudsen Company, one of the members, main powers of management, supervision and leadership in performing the contract. Equipment and materials essential to build the dam and complete the hydroelectric generating system would exceed $30,000,000. Contrary to the customary practice in hydroelectric developments, the contract required Grant County Constructors to purchase and supply all equipment and materials required for the project. To meet this added responsibility, Grant County Constructors procured comprehensive insurance coverage--including a transportation floater--from plaintiff Fireman's Fund Insurance Company effective in September 30, 1959, Grant County Constructors awarded to Gunther-Shirley-Lane Corporation a $3,000,000 subcontract to perform the mechanical work on the dam and powerhouse, including installation of the generators. Gunther-Shirley-Lane, a joint venture of E. V. Lane Corporation and Gunther & Shirley Company, designated E. V. Lane Corporation as the lead, sponsoring and managing member. At the outset, the subcontractor was not required to provide fire insurance coverage for the material and equipment to be supplied by Grant County Constructors for installation under the mechanical subcontract.

July, 1959, covering losses incurred during transportation of materials and equipment.

After awarding the mechanical subcontract, however, plaintiff Grant County Constructors, facing possibilities of a high insurance loss on the $92,000,000 prime contract, decided to share this insurance risk by having Gunther-Shirley-Lane provide insurance protection on materials, supplies and equipment utilized in performing the subcontract. Even if it were to pay the premium for this insurance, the prime contractor saw a benefit in transferring a part of the risk. The enormity of the losses possible under the entire contract persuaded the prime contractor that a sharing of the risk would be one means of avoiding an exceptionally unfavorable loss experience. Promising to pay the premiums, Grant County Constructors sought to induce Gunther-Shirley-Lane to procure fire insurance protection on all materials, equipment and supplies utilized in the course of performing the mechanical subcontract.

Accordingly, Grant County Constructors opened negotiations by requesting Gunther-Shirley-Lane to study the matter of insurance protection with the idea of obtaining adequate fire insurance coverage. After a period of negotiations and after Grant County Constructors had considered certain proposals advanced by Gunther-Shirley Lane, their representatives met at Boise, Idaho, November 3, 1959, to discuss insurance matters. Following these negotiations, the parties on January 14, 1960, entered into a written agreement referred to as modification No. 1, as follows:

'GRANT COUNTY CONSTRUCTORS

'MODIFICATION NO. 1

'to Subcontract of

'Gunther-Shirley-Lane

* * *

'Wanapum Development--Columbia River

'For Grant County Public Utility District No. 2

* * *

'Contractor and Subcontractor understand and agree that Subcontractor will assume responsibility for the protection of work, equipment and materials covered under its Subcontract dated September 30, 1959, From the time such property, equipment and materials are handled by or placed in the custody of Subcontractor and during such time as Subcontractor is performing any operation thereon until Subcontractor is relieved from physical custody thereof or until the installation of said property, equipment and materials has been completed and accepted by the District.

'Subcontractor agrees to secure and maintain suitable insurance covering this responsibility with a limit of $2,000,000 per occurrence. Upon receipt by Contractor of a copy of such policy or policies evidencing this coverage, Contractor agrees to pay to Subcontractor the sum of $24,000.00.

'IN WITNESS WHEREOF, the parties have set their hands this 14th day of January, 1960.

'Witness:

'/s/ W. H. Smith

'Witness:

'/s/ W. W. Davis

(Italics ours.)

'GRANT COUNTY CONSTRUCTORS

'By: /s/ George Piedmont

'GUNTHER-SHIRLEY-LANE

'By: /s/ E. V. Lane'

Modification agreement No. 1 was a carefully negotiated contract. Although it was dated January 14, 1960, the parties had apparently substantially agreed upon its terms earlier, for on November 6, 1959, the general counsel for Grant County Constructors, referring specifically to this agreement, wrote a letter ¹ to Gunther-Shirley-Lane which contained the following paragraph It is understood and agreed that you have undertaken full responsibility for the protection of all work, property, equipment and materials entrusted to your custody from the time you take physical custody thereof until the time you are divested of physical custody or until such work, property, equipment and materials are completed and have been accepted by the Public Utility District. Likewise, we understand that you are obtaining insurance with a primary limit of $2,000,000 covering this responsibility.

Acting in accordance with this letter and the modification agreement, Gunther-Shirley-Lane proceeded to obtain insurance from defendant insurance companies with defendant American Home Assurance Company assuming 50 per cent of the risk and defendants Universal Insurance Company, Balfour Guthrie Insurance Company, Agricultural Insurance Company and United States Fire Insurance Company the remaining 50 per cent at 12 1/2 per cent each. The policy, issued for a premium of $24,000, expressly named 'Gunther-Shirley-Lane Wanapum Powerhouse Joint Venture (Subcontractors)' as the insured, and covered 'all materials and equipment and structures and appurtenant work to be used in connection therewith.' It fixed the beginning and duration of the risk as follows:

Insurance hereunder attaches from the moment property insured becomes at risk of the contractor and/or their subcontractors including during process of unloading, until installation has been completed and accepted by the owner and the liability of the assured therefor shall cease, except as hereinafter limited or excluded.

The policy contained a provision expressly waiving rights of subrogation and contribution from Grant County Constructors as prime contractor and its insurance carrier. ² Sometime in January, 1960, Grant County Constructors, in accordance with modification agreement No. 1, paid the entire $24,000 premium on the policy.

The subcontract on the mechanical work called for Contractor to provide whirley crane service in powerhouse area, and crane service for lifts in excess of 35 tons.

Gunther-Shirley-Lane to install the turbines and generators in the powerhouse. Finely machined and delicately balanced, each shaft for the generators weighed about 100 tons and had been ordered by Grant County Constructors from the General Electric Company. They were to be shipped from Schenectady, New York, to the Grant County Constructors at the Wanapum Dam site and then installed by Gunther-Shirley-Lane, subcontractor. Unloading and handling of these heavy shafts came under provisions of the subcontract which said:

'Provide' as used herein means 'Provide without charge.'

* * * * * *

* * * Subcontractor will accept all items other than District furnished items at the railroad spur provided and Will unload, transport, store and reload all such items.

(Italics ours.) Thus, in their basic construction contract for the mechanical work, Gunther-Shirley-Lane undertook to unload, transport, store and reload the generator shafts, and Grant County Constructors agreed to facilitate these operations by providing whirley cranes for loads exceeding 35 tons.

Grant County Constructors ordered ten generator shafts from the General Electric Company. Before shipment, each shaft was wrapped in sisal paper, crated in wood and then loaded on a flatcar at Schenectady, New York. The first shaft arrived on a flatcar in the spring of 1961, many months after the execution of modification agreement No. 1 and after defendant...